Following a quarter when Nvidia Corp. grew data-center revenue and earnings each by more than 400%, another number illustrates the companyâs dominance even more.Â
Among the record-setting elements of Nvidiaâs
NVDA,
stunning fiscal fourth quarter was its 76% GAAP gross margin, which was up from 66% a year before. Nvidia forecasts that margin will remain around the same level for its ongoing quarter.Â
Nvidiaâs gross margins appear to be the second highest in the semiconductor industry, behind only those of Arm Holdings PLC
ARM,
which licenses chip designs but doesnât sell its own chips directly. Armâs gross margins were roughly 93% in the December quarter.Â
Unlike Arm, Nvidia incurs expenses for things like inventory and supply-chain distribution, which helps explain why the companyâs gross margin is lower. At the same time though, Nvidiaâs margins stand out among those elsewhere in the chip sector. Intel Corp.
INTC,
reported a gross profit margin of 46% while Advanced Micro Devices Inc.
AMD,
reported a 40% margin in the fourth quarter, according to FactSet.
Admittedly, those companies have different business mixes. Intel and AMD make processor chips for PCs, among their other offerings, while Nvidia and AMD both have gaming-chip businesses. Plus, Intel manufactures its own semiconductors.
Leaving mix aside, however, Nvidiaâs margins are so high in part because of the high prices the company is able to command for its products, due to their complex nature and their unstoppable demand. And Nvidiaâs chips really are complex â not just a motherboard with a graphics processor unit (GPU).
âPeople think that the Nvidia GPU is just a chip, but the Nvidia Hopper GPU has 35,000 parts. It weighs 70 pounds,â Nvidia Chief Executive Jensen Huang said on the companyâs earnings call Wednesday. âThese are really complicated things weâve built. People call it an AI supercomputer for good reason.â
The average cost of an H100 GPU is about $30,000.
Nvidia did note that its margins for the latest quarter and the current one could represent a peak due to favorable component costs in the supply chain in the past few months. But Chief Financial Officer Colette Kress said Nvidia had âvisibilityâ into a mid-70% gross margin for the balance of this fiscal year, which would take margins back to where they were before this latest high-water mark.
In other words, even if Nvidiaâs margins come down a bit from here, theyâre still poised to sit above those from virtually every peer in the sector.
Nvidia will also be ramping up its next-generation GPU product, called Blackwell, but it is also currently supply-constrained. That could pressure Nvidiaâs margins if it has to spend more on components that are in tight supply or if it cannot meet all the demand.
Read also: Wall Street keeps likening Nvidia to dot-com era Cisco. Is it justified?
Wall Street had been nervous about the demand for Nvidiaâs products and investors have been on the lookout for any signs that the boom is ending. The company talked up years of growth potential ahead, but the margin figures add an understated element to the story of Nvidiaâs prime positioning and help throw cold water on investorsâ skepticism.
While Nvidia has had a near monopoly on the market for AI hardware so far, it will be facing more competition soon. Still, those record margins are clearly indicative that demand is continuing, and Nvidia should be able to command premium prices for its chips and accompanying systems due to the value they bring to customers.
